BSkyB to Increase Shareholding in Open From 32.5% to 80.1%.

Business/Entertainment Editors

LONDON--(BUSINESS WIRE)--July 17, 2000

British Sky Broadcasting Group plc (NYSE:BSY), the UK-based pay-television broadcasting group, is to increase its shareholding in Open, the interactive TV service company, from 32.5% to 80.1%

-- Open has become the largest e-commerce platform in the UK with

access to over 9 million people through televisions in over

3.4 million homes

-- BSkyB will acquire the 20% of Open held by HSBC for (pound)225

million and the 15% held by Matsushita for (pound)169 million

(an aggregate (pound)394 million) in new BSkyB ordinary

shares. Under certain conditions an additional (pound)75

million and (pound)56 million (an aggregate (pound)131

million) will be payable to HSBC and Matsushita respectively

-- Following BSkyB's agreement to meet BiB's future funding

requirements, BT's holding is to be diluted from 32.5% to

19.9%

-- Building on the initial success of Open, BSkyB is planning to

introduce enhanced applications which will increase the range

and quantity of e-commerce services available

-- BSkyB believes that offering more compelling content, betting

and interactive services to a rapidly-growing customer base

will drive Open's revenues and usage

Tony Ball, Chief Executive of British Sky Broadcasting Group plc, said, "BSkyB, in partnership with BT, HSBC and Matsushita, has successfully established interactive digital television. Over 9 million people already have access to Open through Sky digital, a service that makes e-commerce through the TV a mass-market reality. Our development plans for Open will extend this even further -- with increased usage, more content partners, a wider range of services and an improved look and feel.

Open has huge potential by working with new and old broadcasters, high street stores, e-tailers and others. By increasing our shareholding substantially, we are set to create a strong new revenue stream and establish long-term value. Open has already had a bright beginning; it now has a great future as the world leader in interactive TV."

Information on British Interactive Broadcasting

British Interactive Broadcasting ("BiB") provides interactive TV services on digital satellite direct-to-home ("DTH") through Open and is responsible for part of the subsidy of digital DTH set top boxes. Since launching just over nine months ago, Open has enjoyed considerable success:

-- Open has become the largest e-commerce platform in the UK with

access to over 9 million people through television sets in

over 3.4 million homes

-- Research shows that during June 2000, 1.6 million homes used

Open and more than 1.1 million homes used it at least once per

week

-- Open homes are, on average, accessing the service over 7 times

per month and spending 17 minutes per visit shopping, banking,

contacting friends, playing games and accessing information

-- Open now has over 900,000 registered email users making Open

one of the UK's top five providers of email services 

-- Over 267,000 Open homes (11% of average installed homes) have

made a purchase through Open since October 1999; of these 35%

have made repeat purchases

BSkyB is intending to build on the initial success of Open:

-- The introduction of new technology and applications will

increase the range and quantity of e-commerce services

available and improve the look and feel of the service

-- This transaction will drive Open's revenues and usage through

offering more compelling content, betting and interactive

services to a rapidly-growing customer base

-- Open will build on its position as the leading e-commerce

platform for television users, by attracting the most

appealing services from both traditional and new media

retailers and service providers

-- BSkyB anticipates that by 2005 the Open service will generate

gross interactive transactions of approximately (pound)350 per

subscriber per annum, contributing to total revenues of

approximately (pound)50 per subscriber per annum

Main transaction terms

The main terms of the transaction are:

(i) Prior to completion, BSkyB will provide 100% of Open's

anticipated funding requirement through a secured loan,

ranking ahead of all other shareholder debt

(ii) On completion all shareholder loans (with the exception of

the secured loan) will be converted to ordinary shares

(iii) BSkyB will subscribe on completion for new ordinary shares

in Open at (pound)1 per share. Following this subscription,

BSkyB will own 80.1% and BT 19.9% of the issued share capital

of Open.

(iv) If the valuation of Open (based on agreed criteria) is

(pound)3 billion or greater either at thirty or at thirty six

months from the date of the purchase agreement, a further

(pound)75 million and (pound)56 million (an aggregate

(pound)131 million) will be payable to HSBC and Matsushita

respectively through the issue of new BSkyB ordinary shares.

(v) In all cases 50% of the new BSkyB shares issued may be sold

immediately, while 50% will be subject to a lock-up period of

12 months. BSkyB has the option to issue loan notes rather

than shares to satisfy any deferred and contingent

consideration.

(vi) BT has been granted a one-off option to exit, on the same pro

rata terms (including deferred and contingent consideration)

as those given to HSBC and Matsushita, at any time between

January 1, 2001 and March 31, 2001.

(vii) All exiting shareholders and BT will remain bound in all

material respects by the non-compete provisions for 12 months

following completion.

(viii) Completion of the purchase is conditional upon, inter alia,

regulatory clearance being obtained

Financial Impact on BSkyB

BiB has received aggregate equity and debt funding to date from its shareholders of approximately (pound)400 million. BSkyB has agreed to meet BiB's future funding needs, and believes that BiB will require further funding, including the full cost of set top box subsidies, of up to (pound)250 million prior to operational breakeven expected within 24 months. Prior to completion BSkyB has agreed to fund commitments entered into by BiB between the date of the purchase agreement and completion, and to fund operational expenditure of up to (pound)40 million.

Before amortisation of goodwill, the transaction will be dilutive to earnings per share for a number of years. BSkyB believes that by owning a significantly greater part of Open it will be able to benefit fully from future interactive revenues and create long-term incremental value for shareholders.

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Credit Suisse First Boston (Europe) Limited ("Credit Suisse First Boston") is acting as financial advisor to BSkyB in relation to this transaction and Credit Suisse First Boston de Zoete & Bevan Limited and Goldman Sachs International ("Goldman Sachs") are joint brokers to BSkyB.

This announcement has been issued by, and is the sole responsibility of, British Sky Broadcasting Group plc. Credit Suisse First Boston and Goldman Sachs which are regulated in the United Kingdom by The Securities and Futures Authority Limited, are acting for BSkyB and no one else in connection with the transaction and will not be responsible to anyone other than BSkyB for providing the protections afforded to customers of Credit Suisse First Boston and Goldman Sachs respectively, or for providing advice in relation to the transaction. -------------------------------------------------------

Notes to editors

Description of BSkyB

BSkyB, incorporated in England and Wales in April 1988, currently operates a leading pay television broadcasting service in the UK and Ireland with approximately 8.6 million subscribers to its services as of March 31, 2000. BSkyB Group's principal activities consist of the operation (including production of programming) and marketing for distribution via satellite, cable and digital terrestrial of wholly-owned television channels, and the distribution to DTH customers of these channels together with channels owned and operated by third parties (including some joint ventures in which BSkyB participates).

For the financial year ending June 30, 1999, BSkyB Group reported turnover of (pound)1,545 million and profit before tax and exceptional items of (pound)73 million. As at June 30, 1999, BSkyB Group had net liabilities of (pound)625 million. In its unaudited interim results for the six months ended 31 December 1999, BSkyB Group reported turnover of (pound)850 million, a loss before taxation of (pound)62 million and, as at December 31, 1999, had net liabilities of (pound)665 million. BSkyB is a constituent of the FTSE-100 Index. Based on the Closing Middle Market Price of (pound)12.90 per BSkyB ordinary share on 14 July 2000, BSkyB's current market capitalisation is approximately (pound)24 billion.

Description of British Interactive Broadcasting

British Interactive Broadcasting ("BiB") is currently a joint venture between British Sky Broadcasting Group plc ("BSkyB"), British Telecommunications plc ("BT"), HSBC Bank plc ("HSBC") and Matsushita Electric Europe (Headquarters) Limited ("Matsushita"). BiB owns the Open interactive TV platform and is responsible for the partial subsidy of digital DTH set top boxes. Open's service on digital DTH was launched on October 12, 1999. BiB's unaudited results for the 12 months ended June 30, 2000, are losses before taxation of (pound)330 million (1998: (pound)152 million) on revenues of (pound)22 million (1998: (pound)1 million). As at June 30, 2000, BiB had net assets of (pound)8 million, excluding shareholder loans of (pound)262 million which will be capitalised on completion (1998: (pound)20 million).

Open has a portfolio of leading content providers, including retailers Argos, BT, Carphone Warehouse, Dixons, The Gadget Shop, Manchester United merchandise, Next, Thorntons, WHSmith, Domino's Pizza, Woolworths, Kitbag, Boxman, Toyzone and Gameplay; advertisers Ford, Scottish Power, Mastercard, Nestle and Unilever; HSBC, Abbey National, Norwich Union, Cornhill and The Woolwich for financial services and First Call and Scene One for ticketing at theatres and sports events and Going Places and Tropical Places for travel. Recent quotes from content providers include

"Domino's presence on Open has afforded us numerous e-commerce opportunities and has taught us a great deal about interactive TV ordering. Within 25 weeks of launching on Open, 2.5% of our overall sales came from e-commerce. The service continues to attract new customers to the Domino's brand, the majority of which go onto make frequent, repeat purchases." Chris Moore, Marketing Director of Domino's Pizza

"We are pleased with our performance on the Open platform to date. We are continually improving our offer to meet the needs of Open customers and expectations of the WHSmith brand. We recently introduced a comprehensive Entertainment offer, which, coupled with our position as the service's leading Book Retailer, is proving very successful. This success has been driven by some great new titles like "Return of the Naked Chef" and "Harry Potter and the Goblet of Fire". The continual development of our relationship with Open has also ensured we make the best use of promotional opportunities and reach as many Sky Digital customers as we can. We are looking to grow the already good contribution Open makes to our overall interactive sales. With a 30% increase in Open sales over the last month, we are making good progress." Kate Kennedy, Joint Managing Director of WHSmith Direct

The Toyzone store on Open has been a huge success, with sales over the past 6 months equalling the figures we are achieving via the Internet. The Open service is very easy to use and our customers have found that the Toyzone store on Open is one of the most convenient places to get the latest toys at the cheapest prices. We are now in the process of further developing the store to involve as much interactivity as possible. We hope to bring to life the brand strapline, 'where toys hang out', and give our customers -- both parents & kids alike -- a true flavour of what the Toyzone brand represents." Jo Hall, Toyzone's Managing Director

"Open continues to produce sales figures beyond our expectations. In the first quarter of this financial year, we have done the same amount of business as during the first six months of the service. It is now a very valuable channel for us and a key part of our e-commerce strategy." Charles Dunstone, Managing Director of The Carphone Warehouse

BSkyB ADRs (each equal to six ordinary shares) trade on the New York Stock Exchange under the symbol BSY. BSkyB ordinary shares are listed on the London Stock Exchange, and can be accessed on Reuters under the symbol BSY.L, and on Quotron and Bloomberg under the symbol BSY. Additional information is available on BSkyB's home page: http://www.sky.com.